Should I Surrender My Life Insurance Policy?

Many people with life insurance policies realize that they may need to surrender it. If you are currently considering surrendering your life insurance policy, you should take some factors into account. Such as why you are considering surrendering your life insurance policy, and what other options you may have.

How to Surrender a Life Insurance Policy

To surrender your life insurance policy means that you tell your life insurance company that you no longer want to be covered. In exchange, the life insurance company gives you a small portion of the value of the policy. The process is rather simple, the first step is to contact your life insurance company and notify them that you wish to surrender your policy. Next, ask them for a surrender form or ask if you can get one online. Also, inquire if a letter of instruction will be enough to cancel the policy.   

After they either send you a surrender form or you download it fill it out and send it back via mail. Once the tracking system indicates that the insurance company received the form contact them and make sure they received it and then you will no longer owe them anything.

One of the common reasons to surrender a life insurance policy is that you might not have a living beneficiary anymore. Another is that you may be going through a divorce, and no longer want your ex-spouse as a beneficiary to receive your settlement. A third is that you may have named your children as beneficiaries and they are now financially stable and no longer need the settlement. Alternatively, you may just no longer be able to afford the premiums or see no need in paying them. In any of these situations surrendering your policy is a simple solution to the problem and the insurance company gives you the cash value of the account.

Things to Consider

Depending on your policy the amount of this payout can vary, and some policies may also have surrender fees, which reduce the total amount of the payout. Two terms to keep in mind are Cash value and surrender value. Your cash value, sometimes called account value, is the money that is held in your account. It amounts to a portion of the premiums that you have paid thus far in addition to the money that your insurance company has invested with a portion of your premiums. 

The surrender value is the cash value minus the amount of whatever charges may be associated with surrendering the insurance policy. In some cases, after a certain period, the surrender costs will be nullified, and the cash value will be the same as the surrender value.

Surrendering a life insurance policy is a good way to collect quick cash if you are unable to access other liquid assets or just need some cash now. In any case, surrendering your life insurance policy is the simplest and quickest way to a payout of any sort. However, simply surrendering your policy is not the only available option. 

Life Settlements as an Alternative

Another option that may also be available to you if you want to surrender your life insurance policy would be to seek a life settlement. Life settlements are great options for those that are surrendering their policy simply for the cash value but could be beneficial to anyone looking to get out of their life insurance policy. 

A life settlement is when you sell your life insurance policy to investors and receive a significant payout. This option allows you to receive a significantly larger payout than when you simply surrender your policy, often three to four times the amount.

The only drawback of a life settlement is that it takes a bit longer than simply surrendering your life insurance policy. A typical life settlement transaction only takes three to four months. In three to four months you could receive three to four times more than if you just simply surrender your life insurance policy. Despite taking longer, applying for a life settlement is just a simple process as surrendering your life insurance policy. 

First, just fill out an application, this can be done either online or by hand. Next, collect the necessary documents such as relevant medical records. Third, wait for investors to review your application then you will receive offers. Finally, select the offer that works best for you.

should i surrender my life insurance

Conclusion

Some things to know when considering a life settlement is that in order to qualify you must have a policy that has a death benefit of $100,000 and candidates are typically 70 years or older. If you do not meet these qualifications and are suffering from a terminal or chronic illness and need money now you could qualify for a viatical settlement, which is similar to a life settlement but is intended specifically for those that suffer from terminal or chronic illnesses.

 

A life settlement might not work for you, but if you are considering surrendering your life insurance policy you should also consider a life settlement. If you are curious about whether or not you apply or what you may receive if you do take a look at our qualification calculator.

Find Out How Much You Can Get